Natural Resources Committee on Nov. 27th, 2007

[The Chair, Conservative, Leon Benoit]

Welcome, everyone. It's good to be back here.

I'm a little leery of giving up my chair to the Liberal vice-chair, because since I've been back, he's found this beautiful room for us in Centre Block.

Thank you very much for filling in when I was gone. I appreciate that.

Today, pursuant to the order of reference of Tuesday, October 30, 2007, we are dealing with Bill C-5, an act respecting civil liability and compensation for damage in case of a nuclear incident, whose short title is the Nuclear Liability and Compensation Act.

Today, for the first hour, we have as witnesses, from the Canadian Nuclear Association, Murray Elston, president and chief executive officer, and Pierre Guimond, director, regulatory affairs; from the Nuclear Insurance Association of Canada, Dermot Murphy, manager, and Colleen DeMerchant, assistant manager; and from Walker Sorenson LLP, John Walker, legal counsel.

Each group will be allowed up to ten minutes for their presentation. We will take the witnesses in the order they are on the agenda. It's up to each group to decide who speaks for them.

We will start with the Canadian Nuclear Association. Go ahead, Mr. Elston, please.

[Murray Elston, President and Chief Executive Officer, Canadian Nuclear Association]

Thank you, Mr. Chair and members of the committee, for inviting me to be here with my colleague Pierre Guimond, who is the association's director of regulatory affairs. I have a brief statement and will obviously be pleased to take questions afterwards.

The Canadian Nuclear Association is a non-profit organization established in 1960 to represent the nuclear industry in Canada and promote the development and growth of nuclear technologies for peaceful purposes. One of the things we do most is to provide information for public policy consideration. As an example of that, I've provided to the clerk today in English and in French a document that we prepared analyzing a report drawn up by Greenpeace on tritium. And the analysis of that report that we had conducted under the auspices of an internationally recognized authority on the subject, Dr. Osborne, is in fact an analysis of where the Greenpeace study came up short in its analysis of the effects of tritium.

That is an example of what we do to try to make sure that the information is all available for public consideration. It makes this particularly valuable at this time when the whole world is considering the expansion of nuclear industry assets for the purposes of generating electricity for solving medical problems and for dealing with other interesting issues.

We use that just as a piece of information for you. Please read it, because we want the record to be straight and we spent a lot of our resources and assets in a fashion to make sure that material is available to you.

Nuclear energy in Canada generates about 15% of Canada's electricity and over half of the electricity generated in Ontario, without polluting air. There are 22 reactors in Canada, with two undergoing refurbishment and 18 presently operating. Two units at Pickering A nuclear generating station are in safe storage mode at the moment.

The industry directly employs about 21,000 people and another 10,000 indirectly in other industries, government, and other organizations involved in the nuclear field, including uranium mining, mining and processing, developers and operators of nuclear plants and facilities, electrical utilities, nuclear medicine, and all the way to aerospace and automotive research, manufacturing, engineering, consulting, and education institutions. We're much more broadly spread than just the generation of electricity, which is at the moment probably the most spoken about part of our industry.

As Canada and in particular Ontario embark on making urgent and important decisions on our future electricity generation supply, it becomes even more important that the contributions of nuclear energy are well understood. Our society is grappling with the challenges of supplying its citizens with reliable, affordable electricity without harming the environment. Nuclear energy will be even more important in the future in helping us reach our economic and environmental goals. It has, for 45 years in Canada, enjoyed an excellent safety record, and we're proud of our accomplishments.

The industry is committed to continued better performance, more efficient and safe operation of its units, and an increased contribution to Canada's economic well-being. The commitment to a culture of safety throughout the industry is total. Quite frankly, we will not operate reactors, mine uranium, process nuclear fuel, develop medical isotopes, and manage used nuclear fuel without a full and total commitment to a culture of safety.

Statute law and the regulatory process help the industry fully implement what we are already committed to do on safety. Regulatory oversight is one of the vehicles by which we demonstrate to the public the extent of our safety-first commitment and actions. We do this day in and day out.

The members of the CNA have reviewed Bill C-5, the Nuclear Liability and Compensation Act, presently before the standing committee. The CNA is generally supportive of the act and the improved and coherent liability regime that it brings about. The nuclear liability framework established under the 1976 legislation in Canada is based on principles of absolute and exclusive liability of the operator, mandatory financial security, and liability limitations in time and amount. These principles are standard features of nuclear legislation in the United States, as well as in Europe and other parts of the world. Bill C-5 upholds these important principles, while bringing the existing legislation up to date in some important respects.

Several of our member companies have written to the chair through the clerk and indicated their support of the bill, with a few changes. We have identified the need for a broader range of options in providing financial security. The small changes we wish to propose for Bill C-5 are consistent with this view. In short, more flexibility and options in providing financial security can be achieved by deleting clause 25 and subclause 24(3), and paragraph 66(a).

We are asking the committee to consider deleting clause 25, subclause 24(3), and paragraph 66(a) for the following reasons:

Concerning approved insurers in clause 25, it is not clear to us why the minister needs to designate as an approved insurer “any insurer or association of insurers”, given that the Office of the Superintendent of Financial Institutions already provides such approvals. The basic insurance functions—offering the right policies and providing a claims adjustment service—are now widely available under contractual arrangements, the same way that the Nuclear Insurance Association of Canada, or NIAC, contracts to secure them. We therefore see this clause as unnecessary and propose that it be deleted from the bill.

Concerning the “Maximum amount of financial security” in subclause 24(3) and in paragraph (a) of clause 66, the CNA believes there ought to be more flexibility permitted in providing the financial security referred to in subclause 24(1). We believe that the portion of such financial security that may be provided in the form of an “alternate financial security” should not be limited. It should be determined by the minister on a case-by-case basis, as provided in subclauses 24(2) and 24(4), after considering the adequacy of the financial instruments proposed by each operator.

Similar flexibility already exists in the Canadian Nuclear Safety and Control Act. The 50% limitation specified in subclause 24(3) is confusing and unnecessary, and we ask that it be deleted from the bill, along with paragraph (a) of clause 66, which would then be redundant.

Further, as presently drafted this subclause will limit market flexibility and may also have a negative effect on the range of options operators can employ. For operators, subclause 24(3) may result in unjustifiable cost passed through to shareholders or to customers in the price of electricity. Nuclear operators want full access to these products and to the full range of options available in what is now a mature market.

Members of the CNA are of the view that on the whole the bill responds to society's needs and represents a balanced approach. The bill provides for protection of the public under a coherent, explicit, and stable framework, in which all liability is channelled through the operator and the operator's liability is absolute. These principles also give assurance to the public, the government, and contractors working alongside operators, and as a result, we support those elements.

The CNA would underscore the following considerations. While the CNA members support the increase in liability to $650 million, our support is given on the basis that there be adequate insurance available at competitive rates. The minister ought to have more flexibility to approve forms of alternative financial security on a case-by-case basis.

In addition to that, the members of CNA wish to urge the members of the committee to see these changes in the act as a prelude to the adoption of the Convention on Supplementary Compensation for Nuclear Damage. In order to ensure capacity for conducting nuclear new build and to meet the supply chain needs, this is a priority for us at the CNA and is not to be seen as a “next step with priority” by this committee.

Finally, we are pleased to note Minister Lunn's commitment to consultation during the second reading debate of October 30. CNA members appreciate the minister's comment, because we believe that the regulations are an important component of the framework. Consultation with our industry on drafting the regulations will help to ensure that they are workable and resilient. The CNA wishes to offer technical expertise as appropriate. Similarly, we also hope to see the government's reinsurance agreement to ensure it covers any gaps.

We are pleased to be here this morning and pleased to answer your questions.

Thank you, Mr. Chair.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Elston, for your presentation.

We will now go to the second group of witnesses, from the Nuclear Insurance Association of Canada.

Mr. Murphy, are you the spokesperson?

[Dermot Murphy, Manager, Nuclear Insurance Association of Canada]

Correct, Mr. Chairman.

[The Chair, Conservative, Leon Benoit]

Go ahead, please.

[Dermot Murphy]

Thank you.

My name is Dermot Murphy. I'm manager of the Nuclear Insurance Association of Canada, known as NIAC. As Mr. Chairman pointed out, I'm joined by Colleen DeMerchant, the assistant manger, and John Walker of Walker Sorenson, our legal counsel.

Under the date of November 23, 2007, we did submit a written comment document to the committee, and I hope you have had, or will have very shortly, an opportunity to review the same. In order to provide the committee with some basic background information, I point out the following:

The Nuclear Insurance Association of Canada was established in June 1958 in response to the need to provide adequate insurance cover arising from the peaceful development of nuclear power in Canada. As an approved insurer of nuclear liability insurance in Canada, as provided by the Nuclear Liability Act, NIAC provides the statutory cover required by Canada's nuclear operators, which presently is $75 million. NIAC is a domestic pool representing approximately 20 property and casualty insurers, both primary and reinsurers, who operate in Canada. For those risks requiring more capacity than NIAC has available on the domestic front, two other international pools are considered to be approved insurers to assist with capacity, as well as other technical issues. I will identify those pools in a moment. It is through these pooling arrangements that NIAC has access to worldwide capacity that is available for the nuclear energy hazard.

NIAC is an unincorporated, not-for-profit association formed by the members of the Canadian nuclear insurance pool. It underwrites nuclear liability insurance. It issues nuclear liability policies and inspects nuclear facilities. All of this work is performed on behalf of its members.

NIAC also assists in making the capacity of the British and U.S. nuclear insurance pools available to Canadian nuclear operators. It works closely with these pools by providing engineering inspection reports on Canadian nuclear power plants and establishing insurance rates for these facilities.

Our members comprise both primary property and casualty insurance companies and reinsurers, such as Royal and SunAlliance; Dominion of Canada; Lombard; Zurich; Temple Insurance, part of Munich Re; and Scor Re. All of this is through the Canadian nuclear liability insurance pool. Any additional capacity needed is accessed through the pooling system via the British and U.S. insurance pools.

This completes my comments, Mr. Chairman.

[The Chair, Conservative, Leon Benoit]

Thank you very much.

Thank you, Mr. Murphy, for providing this question-and-answer background information. It's helpful to have information in a concise form. You both have provided that. Thank you very much.

We'll go now directly to questioning, starting with the official opposition. Mr. Alghabra, go ahead please, for up to seven minutes.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Thank you, Mr. Chair.

Good morning, everybody, and thank you for being here.

My questions are first directed to NIAC. I'm just trying to understand the business model that NIAC follows. Is NIAC the actual insurer for the supplier?

[Dermot Murphy]

No, sir.

Mr. Chairman, that's a good question. We are an intermediary. We are not a licensed insurance company in the normal description. We have a constitution. We have bylaws, etc. We are the intermediary that works through the Canadian insurance companies—I gave examples—and works in harmony with the capacity available on the international nuclear insurance front through the British and U.S. pools.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Thank you. But in the letter it says that Natural Resources Canada has approved NIAC as the only nuclear liability insurer.

[Dermot Murphy]

We're the only Canadian insurer. They also provide the same clarification for the pools that are operating in the U.K. and in the U.S.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

I'm just trying to reconcile this. You're not an insurer, but you're the only approved Canadian insurer?

[The Chair, Conservative, Leon Benoit]

Mr. Walker, go ahead, please.

[John Walker, Legal Counsel, Walker Sorenson LLP]

Mr. Chair, maybe I could attempt to clarify.

There are 20 Canadian insurance companies that belong to the insurance pool, and they are the ones that provide the insurance themselves. They are listed on the policy and they each have a certain percentage of the $75 million limit. These insurers have established NIAC as a representative for them. It's in a sense instead of each having an underwriter who is knowledgeable with respect to nuclear insurance, they established NIAC so that they could have one or two people who would be responsible for that. That's Colleen DeMerchant. It's effectively an association of the insurance companies that provide the insurance.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

I'm really just trying to understand how this market works. So those 20 insurers who are out there, who decided who they are? Is it the market? Is it the ministry? Is there some kind of certification process?

[John Walker]

They are all members of the Canadian nuclear insurance pool. All of them are licensed already as insurers in Canada.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

So NIAC is open to any qualified insurance company to actually underwrite a nuclear power plant. Is that correct?

[John Walker]

That's correct.

[Dermot Murphy]

Perhaps I could add a comment. Over the process of time, the insurers have reduced in number through mergers and acquisitions. We have twenty insurance companies today; probably a decade ago it was in the low thirties, etc. The capacity is made available by these companies to the market. Each year we go to the market to try to solicit increased participation by way of additional members to the pool and by way of additional capacity from specific individual company members.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

So there are no special requirements besides being qualified as an insurance company?

[Dermot Murphy]

That is correct. There are no specific requirements. However, I would draw your attention to the fact that the requirement to become a licensed insurance company in Canada is a very stringent set of rules and regulations.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Not all of the insurance companies in Canada are into the nuclear business, right?

[Dermot Murphy]

That is correct. They have made perhaps an underwriting decision to opt out of providing insurance for nuclear risks.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

You talk about pooling. Are all of your members required to deposit some equity or some funds into this pool?

[Dermot Murphy]

No. They establish reserves for potential exposures in the normal process and procedures that are required under the Insurance Companies Act, etc. The companies are governed by OSFI and follow the recommended procedures for reserving, etc.